Bank of Ireland has taken its first step towards an exit from retail banking in the US market.
The bank has decided to exercise its option to force Royal Bank of Scotland to buy its 23.5 per cent stake in Citizens Bank, estimated to be worth around $750 million (£536 million).
Both banks are now seeking to appoint independent consultants to value the Bank of Ireland stake. This process should be completed within the next six weeks. Bank of Ireland then has one week to decide whether to go ahead with the sale.
Group chief financial officer, Mr Paul D'Alton, said the bank's decision to sell its US retail banking interests is not connected with any imminent decision to make another acquisition. "There was a growing perception that our minority stake in Citizens was not necessarily a long term hold. Now is as good a time as any to get on with it when we can come out of it well."
The timing of the bank's exit coincides with the historically high share price of US bank stocks and should yield a handsome financial return. It acquired its 23.5 per cent stake in the New England-based Citizens Bank in 1996 following a merger of its First New Hampshire bank with Royal Bank of Scotland's Citizens Financial Group. At that time Bank of Ireland's stake was valued at $435 million. The bank also received $220 million in cash and loan notes from the deal.
Under the stockholders agreement struck then, Bank of Ireland was granted an option which required Royal Bank of Scotland to acquire its shareholding at any time after April 1997. The entire Citizen's operation is estimated to be currently worth up to $3.3 billion. It contributed £55.5 million to Bank of Ireland group profits last year. Bank of Ireland will continue to operate its US asset management which currently has $17 billion under management, according to Mr D'Alton. "If it (the Citizens sale) goes ahead it will effectively mean the end of branch banking in the US market for the bank."
The company has stated that it is interested in buying another building society in the UK, but only at the right price. It was recently rumoured to have been linked with the acquisition of the Portman Building Society in the south of England. It already has a substantial presence in the British mortgage market since its £600 million acquisition of Bristol & West Building Society two years ago. This has proved very successful for the bank. Mr D'Alton has again reaffirmed the bank's interest in the British market but insists that no immediate acquisition plans are under consideration.
The bank already has a substantial war chest and the funds from the Citizen's disposal will leave it in a very comfortable position. Analysts suggest that the bank will continue to concentrate in its key Irish and British markets and may also consider an acquisition in the Irish market. Likely targets could include Northern Bank and National Irish Bank if their Australian parent, National Australia Bank, decided to exit the Irish market.
